How Does Credit Work?
In our last blog, we spoke about what credit is. In this blog, we will talk about how credit works, specifically, your credit report, credit reporting agencies, and credit scores. Typically, the first thing a potential lender will do when they are evaluating your ability to borrow is to take a look at your history using credit by pulling a credit report. Your credit report is made up of exactly what it’s name implies, your history with borrowing money. Your credit report will show many things such as if you made your payments on time if you have any outstanding payments, and how much you owe on your accounts among other factors. Some of the other things that appear on your credit report include if you have ever declared bankruptcy, any repossessions, or anything else that could be a potential issue with a lender. Among the things listed above, any of your past or current addresses, your name, any misspellings of your name used with creditors, name aliases, your social security number, past credit inquiries, and your birthdate also show up on your credit report. Your credit report is made up of information that is reported by the three national credit reporting agencies, Transunion, Equifax, and Experian.
These three national credit reporting agencies collect their information from lenders who report your borrowing activities to them. It is common for most lenders to report to the credit reporting agencies once a month. The agencies organize the information that they collect from the lenders into categories called trade lines. Trade lines are a technical way to describe separate credit accounts. One exception to the monthly lender reporting practice to the agencies is if the lender chooses not to report to the agencies because they are not legally required to report. However, most lenders report the national agencies.
In our next few blogs, we will be discussing credit scores, what they are composed of, and how to check your scores for free!
Premier Mortgage Resources, LLC | NMLS #1169 | Equal Housing Lender Not an offer to extend credit or commit to lend. California Licensed by the Department of Business Oversight, under the California Residential Mortgage Lending Act.
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